In Australia, landlords have the right to a rent increase on a rental property according to the laws set in their state. But just because you have the right to rent increases, doesn’t always mean you should demand them.
From recognising reliable tenants to assessing the rental market, these are all important steps in determining whether a rental increase is appropriate, regardless of whether you’re learning how to become a property manager or beginner at property investing.
We talked to Buyer’s Agent and property expert, Alex Gibson about how landlords can decide whether it’s a good time to demand a rent increase. Raising rent doesn’t make you a bad landlord, as long as you are fair in the raise.
To learn about laws relating to rental increases and excessive rent increases, continue reading in the following section.
Questions landlords should ask themselves before a rent increase
Landlords shouldn’t increase the rent just because they can. So, yes, there can be disadvantages to a landlord of increasing the rent.
“Increasing rent is a delicate task that takes careful consideration. Plucking a number from thin air, is the quickest way to lose a tenant and lose income”, says Mr. Gibson.
He insists that at the end of the day, income is the main driver, and property finance should be the priority.
Also, remember that rent increases in NSW and in other states might differ. So, research your local state laws before making a decision.
Is your property special?
If your property is special, with a good location close to the beach, for example, or with unique views, your tenants will probably agree to the rent increase —”Having a unique characteristic that the tenant enjoys means that they are less likely to want to leave and will pay the increase as the likelihood of finding something similar is low.”
Do you have reliable tenants?
What is your relationship with your tenants? Do they respect the tenancy agreement, pay the rent on time, and keep the property clean?
Or are they noisy and demanding? Many landlords have to deal with difficult tenants who create issues with rental damages which the bond may not even end up covering.
“With legislation leaning towards the protection of tenant’s rights, it is hard to prove/investigate these tenants until it is too late,” says Mr. Gibson, “sometimes, a bird in the hand is worth two in the bush.”
So, before you raise the rent on tenants you like, consider whether it’s worth the risk of unreasonable tenants who may pay only a fraction more.
Can my rent increase be justified?
In most cases, landlords can only ask for a rental increase once every 12 months, and if the market conditions have changed, you may be inclined to ask for more.
Having said that, landlords must first ask themselves whether the services provided are worth the rent.
Mr. Gibson explains with an example—”if you are asking an extra $50 per week while the toilet is still broken and hasn’t been fixed, the change in the market is hardly something that the tenant will care about.”
“If you can include a repair or improvement such as the installation of a tax depreciable dryer or dishwasher for the apartment, the cost of a $400 dryer will be realised quickly with a $50 per week increase (8 weeks), plus you can claim the annual depreciation.”
What’s the state of supply and demand in the rental market?
On the other hand, if you provide tenants with a good rental experience and haven’t raised the rent in the same year, you might want to start by looking at other properties in the same suburb.
Look at the available properties, the rent prices and how fast they are getting rented out. “If these properties are then being renting within a week or a fortnight, then you know there is a strong demand for these properties. You can feel justified in increasing the rent on your current tenant”, says Mr. Gibson.
He recommends phrasing the rent increase notice from the tenant’s point of view so they can understand the market and the value of your property. Here’s Mr. Gibson’s example of how you might phrase the new rent proposal:
“Mr Tenant, as you can see the current rent of $800 is far below what the market rent for this type of property can achieve, based on the comparable properties. If you were to leave this property because of the proposed rental increase that is consistent with the market, you will have the uncertainty of searching for a similar property at the market rent while competing with other renters for these properties.”
If your tenants can afford it, they will agree to the new fixed term agreement. Otherwise, they will vacate to find a cheaper and lower quality property, and you can find new tenants.
Common questions about rent increases for landlords
The rules around how much rent can be raised vary by state and territory, so it’s important for landlords to be familiar with the specific laws in the area where their rental property is located.
In most cases, landlords can only ask for a rental increase once every 12 months and at the end of a fixed term agreement. This means that they cannot increase the rent more than once within a 12-month period, regardless of whether or not the tenant has agreed to the increase.
Residential Tenancies Act for each state in Australia
How much notice do I have to give before the rent increase?
Before increasing the rent, landlords must give the tenant written notice of the increase. The amount of notice required varies by state and territory, but it is usually between 30 and 90 days. In some cases, landlords may be required to give even more proper notice if the increase is significant.
When giving notice of a rent increase, rental providers must also provide the tenant with a reason for the increase. In most cases, landlords can only increase the rent if the increase is reasonable or justified, as explained in
This means that the increase must be based on actual costs, such as an increase in property taxes or utilities, or on market conditions, such as an increase in demand for rental properties in the area, otherwise known as comparable properties.
Also, how much house rent can rise per year in NSW and other states will differ, so landlords and tenants need to be on top of local laws.
What if the tenant refuses the rental increase?
If the tenant disagrees with the proposed rent increase, they have the right to challenge it. Tenants can contact the landlord and negotiate a smaller increase. Or eventually, file a complaint with the relevant state or territory agency.
Sometimes, landlords may be able to increase the rent without giving the tenant any notice. This is typically only allowed when the tenancy agreement specifically allows for the landlord to increase the rent without notice. Or, if there is written proof of this agreement in an e-mail or message.
It’s important for landlords to keep in mind that they cannot enforce a rent increase on a rental property in a way that is discriminatory or in violation of any local fair housing laws. Landlords also cannot increase the rent in a way that is intended to punish or evict the renter.
How much can rent increase can landlords demand?
There are also rules around how much the rent can be increased. For instance, the amount of the rent increase must be reasonable, so, it must be based on improvements to the property or market rents.
In some states and territories, there are also caps on how much the rent can be increased. These caps vary by location and are usually based on the rate of inflation or the change in the consumer price index. Landlords must ensure that any rent increase is within these caps.
It’s important for both landlords and tenants to be familiar with the rules around rent increases in their area. Landlords should make sure to follow all relevant laws when increasing the rent, and tenants should know their rights if they disagree with a rent increase.
If a landlord is unsure about increasing the rent, they should contact a local agency or seek legal advice.